Silicon Alley invests, but the Valley beckons

Accelerators ramp up in Silicon Alley to give local entrepreneurs a reason to stay put.

The launch of the New York Fashion Tech Lab this spring was intended to signal that startups could get everything they needed locally to tap into one of the city's major industries and come to the attention of the likes of Macy's, J.Crew and Ralph Lauren.

But a few days later, two fashion tech firms announced that they had jumped at the chance to temporarily relocate out West for a months-long education in the ways of Silicon Valley.

"The truth of the matter is, having connections in Silicon Valley is invaluable," said Cynthia Schames, CEO of AbbeyPost, a startup aimed at dressing plus-size women and one of the 29 companies selected by accelerator program 500 Startups. "The Alley is growing, but it's so important to have Silicon Valley contacts."

For years, New York tech companies, venture capitalists and boosters have fought the pervasive mentality of "Go West, young startup," painstakingly nurturing an entrepreneurial culture that attempts to build on the city's strengths in advertising, finance and fashion.

But the allure of Silicon Valley persists, and will continue to, until New York's accelerators begin churning out big, scalable startups. For entrepreneurs who share Ms. Schames' sentiment, being selected by a Silicon Valley accelerator can be a godsend to a tech company. For example, Mountain View, Calif.-based 500 Startups has helped foster the rapid growth of Silicon Alley darling MakerBot. Another Mountain View accelerator program, run by Y Combinator, has played a key role in the development of success stories Reddit, Dropbox and Airbnb.

Those track records, and the exposure the accelerator programs provide, are catnip for tiny companies like AbbeyPost and SourceEasy, the other New York firm chosen by 500 Startups. By temporarily relocating their executives from midtown south to the south shore of San Francisco Bay, both companies are giving themselves a six-month window to gain the connections and knowledge on how to pace their growth and scale up that they say they can't get here at home.

In the past year, 15 New York startups have been chosen by Y Combinator and 500 Startups to go West. While incubators bring outside tech talent to build on a new idea in exchange for a sizable portion of future equity, accelerators provide existing startups with space, counsel and capital in exchange for small chunks of equity with the hope of jump-starting their growth.

Two worlds

Taking time to accelerate outside New York City can be good for a fashion tech startup—depending on its business model.

"If you're building a large e-commerce site to move product, the deep pool of engineering talent on offer out West is very valuable," said Daniel Gulati, who founded his e-commerce fashion startup, FashionStake, in New York before selling it to Fab in 2012. "But if you're running a tech company that works with luxury brands and sells fashion, it's hard to be on the West Coast for any long period of time. That world is here in New York."

Last month's Internet Week New York—a conference meant to highlight the growth of Silicon Alley—felt at times like a reunion for Y Combinator alumni, who popped up on panel after panel, singling out how integral the program was in their eventual success.

Even the most ardent Silicon Alley partisans find it hard to point to an established local alternative to Y Combinator or 500 Startups.

"There's an anointing that comes from being selected by a well-known Valley incubator," said Mr. Gulati. "There isn't one that can do that in New York. Yet."

Even those running Silicon Alley accelerators agree. "New York has yet to establish its pre-eminent incubator," said Matt Harrigan, a managing director at Grand Central Tech, a newly launched midtown accelerator. "There's a real void for a major player to step into that space."

Mr. Harrigan believes that gives him and his partner, Charlie Bonello, an opportunity. They have taken over the former New York offices of Facebook, a space that looks into the western windows of Grand Central Terminal. They plan to use the ample broadband infrastructure and raw space left behind to incubate New York startups without asking for any equity.

"There are a lot of thriving industries in New York City, and not taking advantage of that is wasteful," Mr. Harrigan said. "If the argument is that the best engineering talent is on the West Coast, that might be true, but the vast majority of Fortune 500 companies are here. That creates incredible opportunity."

But like the New York Fashion Tech Lab, Grand Central Tech has yet to "graduate" a class of startups. The New York arm of accelerator TechStars has produced a few classes, including local successes like content aggregator Contently. Other "verticalized" Silicon Alley accelerators, Blueprint Health and FinTech Innovation Lab, have had a few hits.

Scaling up

The two New York tech firms chosen by 500 Startups said they became aware of the fashion tech lab after they had been selected by the California incubator. Both also said that the lab program would not have affected their decision.

"We're solving a slightly larger problem than what many of those companies are looking at," said SourceEasy founder Pranay Srinivasan, who wants his company to become a major tool for designers looking to source affordable quality textiles from around the globe. "For us, it's an issue of scaling, and that's what is done so well in Silicon Valley."

Ms. Schames sees the creation of Grand Central Tech and the Fashion Tech Lab, which was created with the Partnership Fund for New York City, as positive steps forward but also views the shared experience of Silicon Valley as indispensable. "The fashion tech incubator idea is a great one, and sorely needed, but we're looking more for advice than capital at the moment," she said. "There's no better place to get that than Silicon Valley."